A Capital reader wonders whether the Livret A should be preferred to the PEL for one’s children, noting the difference in remuneration between these two savings products.
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– Is it wise, as the popular saying goes, to “break your PEL”?
David, a reader of Capital, asks us the following question: “Hello, after 10 years of PEL for my children, I have just made the last payments before maturity. At the time, the PEL rate was 2.50% and more advantageous than the Livret A (which was then at 0.75% I think). Today, the PELs reach 7,000 euros and I wonder what is more interesting for my children. Should I keep their PEL or close them and pay the money into their Livret A?”.
Hello David, and thank you for sending us this question, which you are probably not the only one to ask. Indeed, as you recall, the Housing Savings Plans (PEL) opened between August 1, 2003 and January 31, 2015 benefited from a remuneration of 2.50%, when the rate of the Livret A was, between August 1, 2014 and August 1, 2015, 0.75%. In terms of yield, there was therefore no comparison at the time! But today, the rate of the Livret A has passed, with 3% since August 1, 2023.
Two regulated savings products that are ultimately very different
At first glance, switching from one investment to another would seem logical to boost the return on your children’s savings. Be careful, however, because these products, although both regulated – that is to say guaranteed by the State and available in all banks under the same conditions -, turn out to be very different. First, the remuneration of a PEL is fixed when it is opened and does not change thereafter, while that of a Livret A can vary upwards or downwards up to twice a year, depending on the level of inflation.
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It is therefore very likely that the Livret A rate will be lowered on February 1st, for example, going from 3% to 2.50%which is ultimately as much as on your PEL! Another subtlety, the yield displayed on the Livret A is net of all taxation. In other words, you pay nothing on the interest, which is entirely due to you. Conversely, the interest generated by a PEL has been taxed since 2018. Having subscribed to your PEL before January 1, 2018, your taxation will however be special.
Beware of PEL taxation, something new since 2018
To put it simply, the interest generated up to the eve of the 12th anniversary of your PEL will remain tax-free. On the other hand, those produced after 12 years will be subject to the single flat-rate deduction (PFU, or “flat-tax” of 30%). Withdrawing your savings from your PEL now to place them in a Livret A can therefore be a good calculation for two reasons. First, you will avoid tax on the interest, and you will therefore be able to withdraw all of your savings to place them in a Livret A remunerated 0.5 points more than your PEL for a little less than 6 more months.
In addition, be aware that if you do not close your PEL, they will be doomed to “disappear” anyway. Indeed, as you point out, it is no longer possible to pay money into this savings product after its 10th year. And after 15 years, it automatically becomes a bank passbook account, i.e. an unregulated passbook whose remuneration is freely set by the banks. However, nothing will prevent you, at that time, from closing your passbook accounts to transfer the savings to your children’s Livret A accounts.
Finally, and before making your decision, keep two things in mind. First, closing the PEL automatically results in the loss of the loan rights accumulated by your children. They will therefore not be able to benefit from a property loan at a preferential rate as provided for in the PEL. Second (and as a reminder), if the operation is profitable as long as the Livret A pays 3%, this rate will change in the years to come, unlike that of your PELs.
Home savings plan: “What should I do with my old PEL if I don’t plan on borrowing?”
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